Today in film tax credits (Updated December 2, 2014)

It never ends: production companies asking for, and getting, tax credits for local production when the economic case is cloudy, to say the least. The Washington Postreports:

A few weeks before Season 2 of “House of Cards” debuted online, the show’s production company sent Maryland Gov. Martin O’Malley a letter with this warning: Give us millions more dollars in tax credits, or we will “break down our stage, sets and offices and set up in another state.” …

Both seasons of “House of Cards” were filmed in Maryland, mostly in Baltimore and Harford County, although the House chamber in Annapolis was used as a set.

In addition to bringing a burst of buzz and excitement, the show created nearly 6,000 jobs and pumped more than $250 million into the state economy, economic development officials say.

In May, O’Malley (D) visited the set to promote film tax credits, exulting that Maryland was becoming “the premier destination in America for film production.”

Sure it is.

After each season, Maryland has reimbursed Media Rights Capital, the show’s California-based production company, for a chunk of production expenses. For the first season, that totaled more than $11 million in tax credits. For the second season, reimbursements could reach $15 million.

Maryland economic development officials wanted to promise “House of Cards” another $15 million in credits for the third season, which was supposed to start filming in early spring.

But lawmakers have not agreed to boost the $7.5 million in tax credits the state allocates annually for film and television projects. Two bills that would increase the ceiling — to $11 million or $18.5 million — are in committee. House leaders say some increase is likely, but whether it will be enough to keep the show in town is unclear.

Two questions.

First, if these production credits are a boon to the state’s economy, why put a ceiling on the amount of the credits? Why not make it unlimited, and let the state become fabulously wealthy? But we know the answer: film tax credits help the production companies who lobby for them, but we have scant evidence that the state as a whole benefits.

Second, where do they get those economic impact numbers? imdb.com says the budget for Season 1 of House of Cards was $60 million (films have been made in Maryland for 1/1000th that cost, and have done rather well). Yet somehow this has an “economic impact” of $75 million, or, on another day, another estimate, $140 million. Mind you, the show has created 2,000 jobs. Or maybe 6,000. Or … who knows?

Film tax credits are not arts policy, they are industrial policy. And they are bad industrial policy – chasing klieg lights makes no more sense than the policy of states’ chasing smokestacks in the previous century. Yet states continue to fall for the idea that somehow this all amounts to strategic economic development.

Maryland’s tax incentives for film production only brings in 10 cents for every dollar spent, and the legislature should let it expire in 2016, a study from the Department of Legislative Services recommends. …

For every dollar granted by the credit, the state receives 6 cents, and local governments receive 4 cents. About 97 percent of the $62.5 million Maryland has spent on the tax credit since the beginning of the 2012 fiscal year has been spent on two shows: “House of Cards” and “VEEP.” “House of Cards” is filmed in Baltimore, and “VEEP” is filmed in Baltimore and Sykesville, Md., according to IMDb.

“Since the credit does not provide sustainable economic development and provides a small return on investment to the state and local government, DLS recommends that the General Assembly allow the film production activity tax credit to sunset as scheduled on July, 2016,” the study reads.

Michael Rushton

Michael Rushton directs the Arts Administration programs at Indiana University in Bloomington. An economist by training, he has published widely on such topics as public funding of the arts, copyright, nonprofit organizations and tax policy, and served as Co-Editor of the Journal of Cultural Economics. At IU he teaches Read More…

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